Table of Contents Hide
- What Is a Franchise?
- How to Become a Franchise Owner With No Money
- How to Become a Franchise Owner of McDonald’s
- How to Become a Franchise Owner of Starbucks
- How to Become a Franchise Owner of Subway
- How to Become a Domino’s Franchise Owner
- Domino’s Franchise Owner Costs
- How Often Do Franchises Fail?
- Is Franchising a Good Investment?
- How does the franchise work
- How is a franchise owner paid?
- Do franchise owners pay taxes?
In addition to the independence of owning a small business, franchises offer the benefits of a vast corporate network. Have you ever wished that you could be an owner of a franchise for a well-known company like Domino’s, Starbucks, Subway, or McDonald’s? This guide covers everything you need to know to own a franchise.
What Is a Franchise?
A franchise is a type of license that gives the franchisee access to the franchisor’s exclusive business methods, procedures, and trademarks. In other words, it simply means when a person (franchisee) can utilize the franchisor’s brand name to market goods and services.
In exchange for a franchise, the franchisee normally pays the franchisor an upfront start-up fee and ongoing licensing costs.
A business can easily increase its market share or geographic reach by franchising its products and brand name. A franchise is a partnership between a franchisor and a franchisee. The franchisor is the initial business. It promises to sell licenses for its name and idea.
Note: Franchisee and franchise owner are the same and are used interchangeably in the text below.
Why You Should be a Franchise Owner Today
The franchisee invests in the right to market the product using an established business model. product or service of the franchisor.
Franchises are a popular way for entrepreneurs to start a business, especially when entering a highly competitive industry like fast food. An important advantage of being a franchise owner is having access to a well-known company’s brand name. You won’t need to spend any money to get your brand and product in front of customers.
How Much Does a Franchise Owner Make?
According to Franchise Business Review, American franchise owners make an average of $80,000 a year before taxes. 51% of franchise owners make less than $50,000 per year, and only 7% make more than $250,000.
How Do You Start a Franchise?
- Investigate your choices.
- Set up your preferences.
- Choose a brand that supports your objectives.
- Apply to the company.
- Plan your budget
- Arrange a meeting with franchisors and operators.
- Plan your business.
How to Become a Franchise Owner With No Money
There are different options you can choose from if you’re enthusiastic about a franchise opportunity but lack the funds to pursue it.
#1. Franchisor Financing
If you have your heart set on a specific brand, you can find out if they provide franchisor financing by doing some research. Many businesses are aware that their franchisees won’t have all the necessary funds on hand. You can ask the brand if they offer startup funding possibilities for their business partners. Be aware that you might need very good credit to choose this option.
To demonstrate your devotion to the firm, the franchisor will often demand that you make some kind of investment in it as well.
#2. Traditional Bank Loan
Small business loans are available to anyone who meet the criteria from banks and credit unions. However, they require your
- Credit report (from 670-850)
- A favorable credit usage rate (less than 30%)
- Long-standing credit history with banks
Additionally, because franchisees are supported by a business strategy that has a track record of success, traditional lenders prefer to lend money to them. While less well-known franchise companies might not be as tempting, conventional lenders are particularly glad to see brands they are familiar with.
#3. Small Business Administration (SBA) Loans
For potential franchisees, SBA loans are another better option. The SBA is a government organization that provides long-term rates at affordable prices. A loan from a bank or credit union is guaranteed by the SBA rather than being provided by them. Someone with poor credit and who is unable to secure a small business loan from a bank on their own may consider this a wonderful option.
There are restrictions on how you utilize the money from the loan. For instance, You cannot use the loan to pay franchise costs.
However, the procedure of applying for an SBA loan takes longer than applying for a company loan from a typical lender and necessitates that the lender has a good credit rating.
#4. Home Equity Loans
You can obtain a home equity loan if you own a home. Home equity is the gap between your property’s value and any outstanding debt. Both of these alternatives use the equity in your property to determine whether to provide you with a loan or credit. For instance, If a home is worth $600,000 but you only owe $200,000 on it, then, it means you have $400,000 in equity. However, keep in mind that most banks won’t let you obtain a loan covering the entire equity.
You can access money through a home equity line of credit, which is secured by the value of your house.
One drawback of home equity loans is that you’re liable for is that you run the danger of losing your home. Home equity loans also need a solid debt-to-income ratio and a high credit score to be approved.
#5. Rollovers for Business Startups (ROBS)
It typically entails a lot of costs to withdraw money from your retirement account. With ROBS, though, you may skip these costs and get access to your money in just a few weeks. ROBS allows you to use your own retirement money to launch your business, eliminating the procedure of going to a lender entirely.
You must have either a 401(k), 403(b), or an IRA account to be eligible for a ROBS plan. To access the funds, you will also need to interact with a ROBS provider, who can charge you a small one-time fee.
If you lack the funds to launch the franchise on your own, think about partnering with someone who can provide the necessary funding. A potential investor could be a friend, relative, or even a former coworker. However, if you go this path, be aware that you are ceding some business control. You should collaborate with someone you have complete faith in. It’s also ideal to draft a strong partnership agreement that spells out everyone’s obligations, privileges, and profit-sharing arrangements.
How to Become a Franchise Owner of McDonald’s
With more than 36,000 locations spread across more than 100 countries, McDonald’s is the biggest international food service retailer and continues to be devoted to franchising as the primary mode of conducting business. Since it began franchising in 1955, McDonald’s has relied heavily on its franchise owner to contribute significantly to the system’s success.
You can become a franchise owner of McDonald’s by following the right procedures. But first, you must take a look at the franchise disclosure document of McDonald’s before deciding to be a franchise owner. All the information you need to know on how to become a franchise owner of McDonald’s is thoroughly outlined in the 375-page booklet.
You will most likely purchase an existing franchise restaurant if you are thinking about being a McDonald’s franchise owner. The majority of new franchisees in the United States join the system by buying an existing restaurant, either from McDonald’s directly or from another franchisee. A relatively tiny percentage of new operators join the industry by buying a brand-new eatery.
The Steps to Follow to Become a Franchise Owner of McDonald’s
#1. Submit an Application
You can submit an application to become a franchise owner at McDonald’s after your finances are in order. You must have entrepreneurial business experience, outstanding credit, and appropriate funding for the approval of your application. These are the following to put in order:
#2. Participate in Corporate Training.
- McDonald’s mandates that you go through corporate-run training before you can establish your business.
- A McDonald’s store close to your house will require you to go through 9 to 18 months of training. During this period, any operating expertise particular to the McDonald’s corporation will also be taught.
- Additionally, you will need to attend a number of seminars, conferences, and one-on-one training sessions. as you start building your own McDonald’s restaurant, to attend. These opportunities allow you to network with other experts in the field while also giving you useful knowledge about running a McDonald’s.
#3. Employ Specialists.
You’ll need to hire a number of experts to assist with construction, legal concerns, and business operations as you start your franchise.
#4. Research a Location
When opening a McDonald’s franchise, you have two choices. You have the option of opening your own restaurant or purchasing an existing one. If at all possible, purchasing an existing building is advised. In addition to having a lower down payment, it is better than buying a brand-new restaurant, buying an existing property will also cost less for upgrades and maintenance. McDonald’s has strict requirements for the kinds of structures that can be used.
#5. Set up the Fundamentals.
Make sure you have all the necessary supplies on hand before you establish your franchise. You need to decide how to handle waste management, decide on your work schedule, and purchase food supplies from the nearby McDonald’s restaurant.
Costs of Being a Franchise Owner of McDonald’s
A franchise owner pays McDonald’s these fees over the length of the agreement
- Payment for services:
A charge per month is dependent on the effectiveness of the restaurant’s sales (a service charge of 4.0% of monthly sales.
A base rent that is paid on a monthly basis or a percentage of sales. Typically, McDonald’s serves as both the landlord and the property owner.
How to Become a Franchise Owner of Starbucks
In the coffee industry, Starbucks is one of the most well-known and recognizable brands. There are around 4,400 licensed shops among the chain’s 10,000 locations worldwide. You can’t actually be a franchise owner of Starbucks because it does not offer a franchise like other brands like Domino’s and Subway. However, you can start a Starbucks as a licensee.
To utilize the Starbucks brand, you would need to be a licensee and pay a license fee. Starbucks takes this action in order to have more control over its retail locations and product quality.
About $315,000 has been spent in all. To maintain control over its retail locations and the caliber of its goods, Starbucks favors licensing. You can become a franchise owner of Starbucks, but only as a licensee. As a licensee, you would pay a licensing fee to rent the Starbucks brand; as a franchise owner, you would own the business.
Steps To Follow to Become a Franchise Owner of Starbucks
#1. Apply For a License
You must first register on the Branded Solutions page of Starbucks in order to start the licensing application procedure. After registering, you may start the application process. You will be required to choose the type of business you are in charge of, as well as to enter your name, address, and other basic contact information. Additionally, you must describe the kinds of things you plan to sell.
You will also need to provide evidence of your qualifications as a qualified store owner during the application process. You can present your case in the comments section and list the reasons why your shop would be competitive in the wider market. After considering all of this data, Starbucks will contact you. you once it has made its decision.
#2. Outline Your Budget
You will get assistance with a variety of aspects of running your business, including store design, staff training, and equipment installation if you are selected to become a licensed store owner. To succeed, though, you will need to have money.
According to some estimates, you will need to have at least $700,000 in liquid assets if you want to open a Starbucks-licensed(franchise owner business). You might be able to start your own starbucks-licensed store if you have a nice location and the right resources.
Keep in mind that licensing differs from a franchise owner in Starbucks. It’s like renting the company’s likeness and brand instead. Instead of a franchising charge, you will be required to pay a license cost. a certified Starbucks’ estimated value is $315,000 or such. For this opportunity, you’ll also need $700,000 in liquid assets.
How to Become a Franchise Owner of Subway
Subway is a multi-national American fast food restaurant chain that specializes in selling submarine sandwiches, wraps, salads, and drinks. In 1965, Peter Buck provided funding for the establishment of Subway, which was formerly known as Pete’s Super Submarines and was started by 17-year-old Fred DeLuca in Bridgeport, Connecticut.
The Steps to Follow to Become a Franchise Owner of Subway
#1. Arrange your Finance
To be a franchise owner of the subway you should have the necessary startup money. For Subway restaurants, the initial franchise owner cost is $15,000 as of the time of publication. Officials from Subway say s that as a franchise owner your investment might reach $78,600, depending on your facility’s location and specifics. Additionally, be ready to provide ongoing weekly royalties to the Subway Corporation. advertising fees of 12.5 percent of your gross sales receipts
#2. Attend a franchise seminar for Subway
Every month, Subway host a number of seminars for their franchise owner across the globe where you can learn more and interact with representatives and corporate leaders. Additionally, you may go to one of Subway’s many trade events or check out the company’s six-part online sales seminar, which is accessible round-the-clock on the website.
In the nearest of its 12 global training facilities, Subway offers a comprehensive two-week operational process instruction to the franchise owner. Utilize the numerous continuous training and development assistance programs offered to Subway as a franchise owner and personnel whenever available.
#3. At all times, abide by the terms, conditions, and policies of the Subway franchise.
A successful franchise operation depends on consistency. In a Subway franchise owner restaurant in New York City, as in Chicago, Los Angeles, or Tokyo, customers anticipate receiving the exact same level of goods and services. Maintain only products distributed with corporate consent and always comply with all Subway franchise owner operational standards.
#4. Participate in all marketing campaigns that the company sponsors.
Although you will undoubtedly receive your 12.5% back in national advertising, many promotions don’t require franchise owner participation. Take advantage of optional nationwide advertising efforts that boost sales by taking part in sales promotions and marketing alliances.
How to Become a Domino’s Franchise Owner
Domino’s Pizza is the second-largest pizza chain in the nation, with locations in every state. Customers can choose to pick up their pizzas from the neighboring business or have them delivered. In addition to their standard styles, Domino’s offers deep dishes, thin crust, and “Brooklyn Style” (also known as “New York Style”) pizzas. It lures customers in with a wide selection of toppings and coupons so they may get a meal for a fair price. Domino’s has expanded its menu in recent years to include more foods other than just pizza, including bread sticks, buffalo wings, pasta, sandwiches, and desserts.
Training and Education of domino’s franchise owner
Before you become a franchise owner of Domino’s, there are certain requirements you must undergo.
A four-day pizza prep school and a five-day franchise development program are both prerequisites for becoming a Domino’s franchise owner, which must be completed at the company’s corporate headquarters.
Additionally, for six to eight weeks, a franchise owner of Domino’s will receive in-store training. Your level of managerial experience inside Domino’s will determine the kind of training you receive and how long it lasts( franchise owner)
Domino’s Franchise Owner Costs
There are several different types of prices, such as one-time, upfront expenses as well as ongoing charges like the crucial franchise royalty fee. The principal prices are covered below, however, bear in mind that these figures only represent averages or estimations and that your location will have the biggest impact on your final bill.
#1. Once-off expenses
Initial financial commitment:
Depending on where you are and the kind of Domino’s you wish to open, the initial investment will change considerably. At the low end, you can anticipate spending about $145,000; at the high end, the sum can exceed $500,000.
Also, when opening a brand-new Domino’s location or franchising an existing one, the first cost as a franchise owner is $10,000. Be aware that Domino’s occasionally levies a $25,000 “reservation fee.” More information about this additional fee can be found in the franchise disclosure paper you receive.
#2. Recurring fees
Franchisees will be liable for recurring franchise costs, as is the case with the great majority of franchises.
The primary source of income for franchisors is the franchise royalty fee, which is equivalent to around 5.5% of a store’s weekly gross sales.
For marketing and advertising backed by corporate, you can anticipate paying 3% to 4% of your store’s weekly gross sales. However, this cost may be greater.
Other fees that you’ll either have to pay upfront or on an ongoing basis include real estate fees, inventory and supply chain fees, and fixtures fees. Review your Domino’s franchise agreement carefully again to get the most recent and most accurate picture possible of the costs and requirements.
#3. Franchise financing
A lot of people who want to open franchise locations require franchise finance. This can pay for any major fees as well as upfront expenses like the franchise fee and fittings. It can even pay for real estate.
Like many other franchises, Domino’s doesn’t provide direct or indirect financing for its franchisees, so if you need money to start a Domino’s franchise owner, you’ll have to search elsewhere. Since they offer loans for equipment finance, term loans, personal loans for companies, and more, third-party lenders are frequently a smart choice.
You will be more able to obtain financing if you have a strong financial profile, such as good credit and any prior business experience. enterprise loan. These qualifications will also play a role in determining how much capital you will get.
Is Owning a Franchise Profitable?
Although you might not become wealthy, you have a fair chance of making an adequate living. Franchise owners typically make $60,000 a year, according to a study. Of course, this means that while some franchise owners earn more, the majority earn less.
How Often Do Franchises Fail?
In recent studies, research was conducted with more than 20,500 small firms. It is discovered that 65.3 percent of franchises and 72 percent of independent businesses were still operating after four years. Compared to independent retail enterprises, which had a survival rate of 73.1%, retail franchises did worse, with a survival rate of only 61.3%.
Over a five-year period, franchisee survival rates are comparable to independent start-up survival rates. Over a ten-year period, 50% of franchisee systems fail. Amidst all of the failures, there are some that still succeed, depending on varying factors.
Is Franchising a Good Investment?
Franchising a franchise depends on a number of factors. Being a franchise owner carries less risk but that does not mean it is risk-free.
Additionally, You may want to locate a franchise that exhibits strong profit margins and reasonably low operating costs because the most profitable franchises are those with the best ROI. Low overhead franchises are a wonderful place to start.
Franchises might be a wise financial decision. In general, acquiring a franchise is much more likely to be successful than starting your own business. You can become a franchise owner of popular brands such as McDonald’s, Subway, Starbucks, and Domino’s.
What Are the Disadvantages of Owning a Franchise?
- There may not be much opportunity for innovation because the franchise agreements prescribe how you must operate the firm.
- There are typically limitations on where you may operate, what you can sell, and who your suppliers are.
- The reputation of your business could be harmed by poor performance by other franchisees.
- Purchasing a franchise involves continuing to split profits with the franchisor.
- At the conclusion of the franchise term, franchisors are not required to renew an agreement.
Purchasing a franchise involves many of the same considerations that go into starting any other type of business, including a passion for the market or way of life, a business plan, a team, tools for organization, finances, and more.
How does the franchise work
You can run a business if you buy a franchise as an investor or franchisee. You receive a format or system created by the business (franchisor), the right to use its name for a predetermined period of time, and help in exchange for paying a franchise fee.
How is a franchise owner paid?
Franchise owners profit from the revenue generated by sales and service agreements. When overhead expenses are deducted from revenue, this is often the remaining sum.
Do franchise owners pay taxes?
It depends. Franchise taxes are not an alternative to federal and state income taxes, making them a different type of tax. In addition to paying income taxes, these levies must be paid. They are often paid yearly at the same time as other taxes. Depending on the tax regulations in each state, the franchise tax might vary significantly in amount.